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Manchester United and AC Milan: a study of contrasts
Both clubs posted record revenues for the latest financial year. Their trajectories, though, are completely different
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Heather: “I really don’t think India should bid. The ICC World Cup that’s happening now seems less inclusive. Nothing seems to be right. I commend Bharat for aspiring to host such a big event of a high calibre, but the bar seems pretty high and it needs more work. From facilities, workforce, and dedicated taskforces to inclusiveness and more transparency.”
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Right, let’s get into today’s edition.
A tale of two giants
Two giants in the world of club football released their financial results this past week.
On Monday, AC Milan announced a profit for the first time in 17 years. The Italian club also reported record annual revenues of €404.5 million ($429 million) for the year ended June 2023, a 36% year-on-year increase. It made a net profit of €6.1 million ($6.4 million). Just four years ago, it had reported a club-record deficit of €145.9 million ($161.2 million).
And on Thursday, Manchester United posted a record revenue of £648.4 million ($786 million) for the year ended June 2023, up 11% from the previous year, on the back of increased commercial and matchday (ticket) income. What’s remarkable, though, is that the English club didn’t make a profit despite the record revenue, although its loss significantly dropped from £115.5 million ($140 million) last year to £28.7 million ($34.8 million).
Now, these figures would have you believe that both clubs are on the right track. But only one of them is on an upward trajectory in terms of on-field performance and overall efficiency in terms of its ownership and management.
Manchester United haven’t won the Premier League since 2013. In the last decade, success in terms of trophies has been limited to one Europa League, one FA Cup, two League Cups, and a Community Shield. For the most successful club in English football, that’s hardly an enviable haul. Enough has been written about United’s struggles to replicate the two-decade-long era of success under former manager Sir Alex Ferguson, who retired in 2013.
However, if the last decade has proved anything, it is that United’s on-field performance hardly matters when it comes to generating revenue. The club reported record match attendance and match-by-match hospitality revenues for the latest financial year, with 2.4 million tickets sold. There are currently over 150,000 people on its season ticket waiting list.
In August, the club also announced a 10-year extension of its kit deal with Adidas, reportedly worth at least £900 million. It’s the largest kit deal in Premier League history based on revenue per season. And in September, United agreed to a three-year deal with tech company Qualcomm that will see its Snapdragon brand become the club’s new front-of-shirt sponsor from next season. This deal is reportedly worth £60 million (~$75 million) per year.
With a global fan base of 650 million, you can almost say that Manchester United is too big to fail commercially. Commercial revenue for the latest financial year was £302.9 million, up by 17.5%. This softened the impact of a 2.7% dip in broadcasting revenue—£209.1 million—on the back of the club’s failure to reach the lucrative Champions League last season.
This explains why the Glazer family is finding it difficult to let go of ownership of the club, much to the chagrin of United’s supporters. It’s now almost a year since the American owners announced they were exploring strategic alternatives for the club, including new investment and a sale.
The Glazers have been hugely unpopular since acquiring United in 2005 via a £790 million leveraged buyout. Which means they used a significant amount of borrowed money to fund the acquisition. As a result, United went from a debt-free club back then to currently owing $650 million, all thanks to the Glazers.
But despite facing several fan protests over the last 18 years, the Glazers are refusing to let go of this cash cow of a club. According to reports, they’re likely to accept British billionaire Jim Ratcliffe’s offer to buy 25% of the club for £1.3 billion, which would mean the Glazers would still be majority shareholders.
Ratcliffe reportedly wants control of sporting operations, while the Glazers continue running the commercial side. This essentially means that Ratcliffe would now be in the line of fire for United’s on-field performance, while the Glazers are only in charge of the club’s foolproof commercial arm. It was such a good deal that the Glazers turned down Qatari Sheikh Jassim bin Hamad al Thani’s $6 billion offer to buy the club outright.
However, it’s unlikely that Ratcliffe and the Glazers would not interfere in each other’s matters. The Financial Times reports that co-chairman Joel Glazer would still have a seat on a committee overseeing football matters, while Ratcliffe would command some influence on the commercial side. Then, there’s also the matter of figuring out what to do when a decision cuts across both the football and commercial operations, like investing in the stadium or training facilities.
“It’s not an equal partnership. A 25 per cent shareholder doesn’t normally get to call the shots,” said Chris Blackhurst, author of The World’s Biggest Cash Machine, an account of the Glazers’ ownership of United due to be published this month. “It’s naive to think you can separate the sporting side from the commercial side.”
Jim Ratcliffe and the uphill task to transform Manchester United | Financial Times
United’s board is yet to vote on the Ratcliffe deal. Considering the protracted nature of the “strategic review”, it could be days, weeks, or even months before things are finalised. Meanwhile, United will host its neighbours and defending champions Manchester City in this weekend’s derby. Their current positions in the table—eighth and second—are only one of the indicators of how low United have fallen in the last decade, even as City rose from strength to strength on the back of state ownership and efficient management.
If there’s one club that could empathise with United’s current predicament, it’s AC Milan. Just five years ago, the famed Rossoneri were in deep trouble, as owner Li Yonghong defaulted on high-interest loans worth over €300 million (~$360 million) that he had taken from American hedge fund Elliott Management Corporation to fund his takeover of the club in 2017. Elliott decided to treat the club as a distressed asset and effectively acquired it for around €400 million (~$470 million), just over half of its valuation just months earlier.
Milan hadn’t won the Italian top flight, Serie A, since 2011. The last of its seven Champions League titles was claimed in 2007. It had even failed to qualify for the competition since 2014. In 2019, the club was also banned from European competitions for a year after breaching financial fair play regulations between 2015 and 2017. And now, it was in the hands of an American hedge fund that had no prior experience in running a football club.
What Elliott did with AC Milan between 2018 and 2022 would turn out to be a blueprint for buyout firms looking to invest in football clubs.
It first injected €50 million ($60 million) in emergency funds to stabilise the club’s finances. Then, it made some smart hires, including former Arsenal CEO Ivan Gazidis and club legend Paulo Maldini as technical director. It empowered a committee that included Gazidis, Maldini, the chief scout, the head of analytics, and an Elliott executive with decision-making. And it cut costs by letting go of players on high salaries and recruiting young footballers. By October 2020, AC Milan had the youngest team in Europe’s five major leagues, with an average age of 24 and a half. That’s despite the presence of Zlatan Ibrahimovic, who was 39 at the time.
In 2022, AC Milan won the Italian league after 11 years. Days later, Elliott sold the club to American private equity firm RedBird Capital for €1.2 billion ($1.3 billion)—at a profit of at least $500 million. Last season, AC Milan reached the Champions League semi-finals. In September, the club announced it had filed a proposal to build a new 70,000-seat stadium in the southern part of Milan, which would see it move away from the iconic San Siro, a stadium it shares with Inter Milan. Having its own stadium will allow AC Milan to further increase its revenues.
A new stadium, new and efficient owners, a team playing well, and a profitable, well-run football club. Sure, it may not have an official global mattress and pillow partner like Manchester United does. But then you can’t have it all.
🏀📺 NBA legend LeBron James, NFL star Peyton Manning, and the Obamas are planning to produce a sports docu-series that’ll follow the lives of professional basketball players, reports The Wall Street Journal. The series will be modelled on the hit Netflix show Quarterback, which followed three NFL quarterbacks during the 2022-2023 NFL season. The new basketball series is expected to stream on Netflix.
🇸🇦🎮 Saudi Arabia is launching an annual Esports World Cup next year, which will have the largest prize pool in the industry’s history, according to a statement from Crown Prince Mohammed bin Salman. Last year, the Savvy Games Group, owned by Saudi Arabia’s sovereign wealth fund, said it would invest 142 billion riyals ($37.8 billion) with the aim of making the country a global gaming hub. Sports and esports are a key part of Saudi Arabia’s Vision 2030, an initiative to diversify its economy and reduce its dependence on oil.
🇩🇪👟📈 German sportswear major Puma reported an operating profit of €236.3 million ($252.3 million) for the quarter ended September 2023, down from €257.7 million in the same period last year. Its revenue of €2.3 billion ($2.4 billion) beat analysts’ expectations, with a 6% rise. Puma is sticking with its annual operating profit target of €590 million-€670 million ($620 million-$710 million). The brand performed best in the Europe, Middle East and Africa region, with 9.9% growth in the quarter, followed by Asia-Pacific (4.6%) and the Americas (2.5%).
🇫🇷🇮🇳🚲 Decathlon India’s sales grew by 37% to ₹3,955 crore ($475 million) in the year ended March 2023, which is more than Adidas, Nike, and Asics combined, according to The Economic Times. The sportswear retailer posted a net loss of ₹18.6 crore for the year ($2.2 million), compared with a net profit of ₹36 crore ($4.3 million) in FY22.
🎲🎰💸 Indian online gaming companies and casinos have received notices worth ₹1 lakh crore so far from the Goods and Services Tax (GST) authorities for tax evasion. Fantasy sports platform Dream11 has received the largest notice, worth ₹40,000 crore. ICYMI, in a previous edition of The Playbook, I wrote about how the fate of the industry hangs on the Supreme Court’s decision in the Gameskraft tax evasion case.
🚴🇪🇺 Five major European cycling teams are exploring the idea of setting up a new league to disrupt the business model of the sport, reports Reuters. The idea behind the new league is to distribute some of the profits from cycling races among the teams. Currently, a majority of the profits from races such as the Tour de France and Giro d’Italia go to the organisers. The teams largely depend on external sponsorship for funding.
📖 Weekend Reading
Tale of two Manchesters: United, City’s ever-changing rivalry [ESPN]
The joys and agonies of being a sports educator in India [Scroll]
LIV Golf is not going away. Neither are questions about its future [The Athletic]
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